The Supply Side: Holiday season expected to be a wild ride for retailers

This entire year has been a roller coaster ride for retailers, and the holiday season is expected to follow that pattern. National Retail Federation chief economist Jack Kleinhenz said, “forecasting sales is like assembling a jigsaw puzzle without all the pieces.”

“We are waiting for new data and are still assembling puzzle pieces for the 2020 holiday season,” Kleinhenz said in early October. “I am cautiously optimistic about the fourth quarter in terms of the economy and consumer spending, but the outlook is clouded with uncertainty pivoting on COVID-19 infection rates.”

Kleinhenz said, “the recession appears to be behind us and the reopening of the economy has created momentum that should carry through the fourth quarter. The test is whether consumer spending will be sustained amid wildcard puzzle pieces, including policy surprises, the [presidential] election and a resurgent virus.”

Deloitte expects holiday sales to rise between 1% and 1.5%, which would amount to $1.14 trillion for the industry. Last year, sales rose 4.1% and nearly totaled $1.14 trillion.

Rod Sides, vice chairman at Deloitte, said one of two scenarios would play out this year. He said much of the growth would depend on spending among high-income consumers and whether that will be enough to offset the lower spending by millions of households facing unemployment and lost wages. Deloitte said another round of stimulus from the federal government could bolster sales to 2.5% or more, but that’s still a wild card. Kleinhenz said there could also be another speed bump and reduced spending if there is no further economic stimulus.

“While high unemployment and economic anxiety will weigh on overall retail sales this holiday season, reduced spending on pandemic-sensitive services such as restaurants and travel may help bolster retail holiday sales somewhat,” said Daniel Bachman, Deloitte’s U.S. economic forecaster.

EARLIER PUSH
Retailers have ramped up earlier holiday promotions this year. Amazon Prime Day took place Oct. 13-14 and was expected to siphon some holiday sales away from traditional retailers. Walmart has said it will offer October deals as well. But Prime Day is typically held in July, and the October sales extravaganza is expected to compete head-to-head with limited holiday budgets this year.

Coresight Research surveyed U.S. consumers in mid-August and found one-third expecting to buy on Prime Day, well above the one-quarter expecting to buy on Cyber Monday and 16% on Black Friday. In a recent webinar, Deborah Weinswig, CEO of Coresight, said most consumers would likely avoid shopping malls, conducting more purchases online for curbside pick-up or delivery.

Walmart, Costco and Sam’s Club began installing Christmas displays in late August. According to Neil Saunders of Global Data, the “Christmas creep” has been around for the past few years, but the push was earlier this year, only in part because of the later Prime Day. He said retailers could benefit from an elongated selling season given the pressure on fulfillment amid the pandemic.

While sales promotions will begin in October, many retailers from Walmart to Macy’s and Target have said they will close their doors on Thanksgiving Day, which had been a pre-sales push ahead of Black Friday in past years. Deloitte said retailers are also working on strategies to prevent stores from overcrowding as physical distancing has become the norm. More deals are expected to be offered online, as that’s one way to reduce crowd sizes.

“By any measure, this holiday season will be unlike any other, said Matthew Shay, CEO Of National Retail Federation. “This is going to be a historic holiday season. And while some memorable traditions may change, the tradition of retailers supporting their customers and their communities is stronger than ever. That is why we encourage consumers to adopt two new traditions this year — shop safe and shop early — so we can all celebrate a happy and healthy holiday.”

November historically has been the most popular month to begin holiday shopping. Despite concerns about the COVID-19 pandemic, 43% surveyed by the National Retail Federation say they are waiting until November to start again this season. Also, 59% said they plan to shift more of their shopping online compared with last year.

“In a year that has been full of uncertainty, we encourage consumers to avoid the last-minute stresses of the holiday season like long lines and shipping delays. Retailers are ready with inventory and sales, and there’s no reason to wait until Thanksgiving weekend to kick off your gift shopping,” Shay said.

CONFRONTING CHALLENGES
One of the biggest concerns this holiday is access to inventory and the expected higher cost of final mile deliveries. The United Parcel Service announced higher fees on large shippers as the pandemic disrupts the supply chain.

UPS said the new fees could total as much as $3 per package for ground shipments and up to $4 a package for air shipments. UPS said the surcharges will apply from mid-November until mid-January and will apply to customers who ship more than 25,000 packages a week.

FedEx joined in with increased fees for shipments. Surcharges on regular shipments to homes will range from $1 to $5 from Nov. 2 to Jan. 17.

“As the impact of the virus continues to generate a surge in residential deliveries, we are entering this holiday peak season with extremely high demand for capacity and are experiencing increased operating costs across our network,” FedEx said. “We anticipate residential volume to continue to surge into the New Year.”

The added cost of shipping will likely be passed on to consumers, according to analysts, who also said retailers are expected to keep minimum order thresholds this holiday season, and those who can will encourage free curbside pickup.

Retailers from Gap to Walmart said they would be adding seasonal workers to help with supply chain and curbside pickup. While Gap did not provide an exact number of new hires, the clothing retailer said these new roles needed for operating during the pandemic called for hiring 50,000 new workers in the first half of this year. Best Buy said it was hiring “thousands of part-time employees for this holiday season.”

Walmart said it plans to hire 20,000 seasonal employees to pack and ship online purchases in its fulfillment centers. Kohl’s also is ramping up its store and supply chain hiring, though the department store declined to give a specific number. Grocery retailer Fresh Market said it plans to hire 1,500 seasonal workers to expedite curbside service and order picking.

EDITOR’S NOTE: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.